Insuring vs. Gambling

Q: My husband was an attorney, and sophisticated investor, who left for a different world a couple of years ago.  His life was insured by several policies, affording over 56 million dollars in coverage.  In each case, our children were initially the beneficiaries, but immediately assigned their interests to investor friends of his, who always paid the premiums.

I am refusing to turn over copies of the death certificate to these investors.  I think that these policies ought to be paid to me, as the representative of my husband’s estate.

A: Section 3205 of the Insurance Law explicitly states that a person may originate a life insurance policy upon himself and immediately transfer that policy to a third party.  On the other hand, a third party may not originate the policy, unless the beneficiary is either the first person or someone with an ‘insurable interest’ in the life.

An insurable interest depends upon whether the beneficiary is “closely related by blood or by law”.  If so, the beneficiary needs only a “substantial interest engendered by love and affection”.  If not, she needs a “lawful and substantial economic interest in the continued life, health or bodily safety of the person insured”.

Clearly, the insurable interest doctrine seeks to differentiate between bona-fide insurance policies and mere wagers.  Obviously, there is a lot of tension between the two parts of section 3205.  However, courts do not rewrite statutes.  Only legislatures do.

Sure enough, in November 2009, well after your husband’s passing, new section 7815 went into effect.  This new section precisely overrides section 3205 to the extent of prohibiting ‘stranger-originated’ life insurance – defined as any arrangement, at policy issuance, to facilitate the issuance of a policy for the intended benefit of a person who has no insurable interest.  That is too late to undo what happened here, although it makes for a different future.

By: Scott Baron,
Attorney at Law Advertorial

The law responds to changed conditions; exceptions and variations abound. Here, the information is general; always seek out competent counsel. This article shall not be construed as legal advice.

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